Kodak Wins Approval to Auction Digital Imaging Patents

Eastman Kodak Company obtained approval from the U.S. Bankruptcy Court in the Southern District of New York to conduct an auction to sell its Digital Capture and Kodak Imaging Systems and Services (KISS) patent portfolios.

Kodak’s motion was contested by Apple, Inc. and FlashPoint Technologies, Inc., which have asserted “ownership” interests in a small number of the 1,100 patents in the portfolios. The bankruptcy court, over Apple and Flashpoint’s objections, found that all of the patents in the Digital Capture and KISS patent portfolios are property of Kodak’s estate. Accordingly, the court granted Kodak the right to sell these patents free and clear of Apple and FlashPoint’s claims at the auction, subject to the applicable provisions of the U.S. Bankruptcy Code.

“We are gratified that the court has enabled us to move ahead with our patent auction in a timely manner and with clarity on ownership for the winning buyer,” said Timothy Lynch, Kodak vice president and chief intellectual property officer. As previously announced, interested buyers will be able to submit bids on a confidential basis, subject to review by Kodak, certain of its creditors and the bankruptcy court. The auction is expected to be held in early August.

Kodak is selling the patents under section 363 of the U.S. Bankruptcy Code, which permits a sale free and clear of any adverse claim or interest. The patents will be sold in a fair, competitive process overseen by the court. At closing, the winning bidder can obtain an order of the court that protects it against any third-party ownership claims.

The bankruptcy court’s ruling provides a path to separate the auction process from continuing litigation about the Apple and Flashpoint claims. Kodak believes these claims are without merit, and is also seeking a determination on summary judgment, expected to be heard in July, that the claims are time-barred.

Lynch said: “The Apple and FlashPoint claims are baseless and Kodak will still seek dismissal on summary judgment in July. However, today’s ruling provides a Court-approved process allowing buyers to acquire the patents free and clear of all ownership allegations, regardless of the status of the dispute with Apple and Flashpoint at the time of closing.”

Even if the dispute with Apple and FlashPoint has not been fully resolved by the time of closing of the patent sale, Kodak may still sell the patents free and clear of Apple and FlashPoint’s claims by establishing “adequate protection” under the Bankruptcy Code for Apple and Flashpoint at the time of sale. Kodak’s adequate protection could take many forms depending on the value of any remaining alleged interests, the amount of the sale proceeds, and other factors. Alternatively, the bankruptcy court also authorized Kodak to sell the patents subject to Apple and FlashPoint’s claims, if mutually agreed between Kodak and the winning bidder.